ConocoPhillips said it plans to sell its 8.4 percent stake in Kazakhstan's giant Kashagan oil field to India's Oil and Natural Gas Corp Ltd for about $5 billion as the Indian company looks to make up for flagging production.
Kashagan, the world's biggest oilfield discovery since 1968, holds an estimated 30 billion barrels of oil-in-place, of which 8-12 billion are potentially recoverable. First production from the field is expected in 2013.
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India, the world's fourth-biggest oil importer, buys nearly 80 percent of its oil needs as expanding refining capacity has outpaced local oil output. State-run ONGC's local oil output has been almost stagnant for years.
ConocoPhillips said the carrying value of the assets related to its Kashagan interest was about $5.5 billion as of September 30.
The company said it would take an after-tax impairment of about $400 million in the fourth quarter to reduce the carrying value. The deal is expected to close in the first half of 2013.
ONGC, India's fifth-biggest company by market value, has been investing to maintain output from its old fields and has capital spending plans of around 340 billion Indian rupees ($6.12 billion) both this year and next. The company is under pressure from the government to meet rising demand.
The acquisition is the largest ever for ONGC, and marks the biggest outbound deal from India since mobile phone operator Bharti Airtel bought mobile phone operations in 15 African countries for $9 billion in 2010 from Kuwait-based telecoms group Zain .
ONGC Videsh, the arm of ONGC that invests in overseas assets, said the acquisition would likely add 1 million tonnes (20,000 barrels per day) to its annual production over 25 years with the company's share of output significantly higher in later stages of development. ONGC Videsh's production in the year to March 31, 2012 was 8.7 million tonnes.
Kazakhstan, home to 3 percent of the world's recoverable oil reserves and the largest former Soviet oil producer after Russia, has sought to revise deals struck with foreign energy companies in the lean post-Soviet years.
ConocoPhillips has been conducting a disposal program to reduce its non-core overseas assets to reduce debt and increase its exploration and dividend budgets.
It has already exceeded its target of asset sales worth $20 billion by the end of 2012, including the sale of its stake in Lukoil , Russia's second-biggest oil producer.
"(The) purchase price of $5 billion is at the high end of our prior expectation of $4 to $5 billion," analysts at Simmons and Co wrote in a note to clients.
"This is a positive for ConocoPhillips as it marks important progress on their asset divestiture program, which is needed to support the capital program and dividend."
ConocoPhillips shares down slightly at $56.39 in early trading.
The company said it notified government authorities in Kazakhstan, and its partners in the North Caspian Sea production-sharing agreement of its intention to sell the stake.
Kazakh Oil and Gas Minister Sauat Mynbayev last month disclosed ConocoPhillips' plans to sell its stake in the field.
The Kashagan field is jointly controlled by state-run KazMunaiGas and six international companies, including Eni Spa ExxonMobil Corp , Royal Dutch Shell Plc , Total SA and Inpex Corp <1605.T>.
(Reporting by Swetha Gopinath in Bangalore; Editing by Maju Samuel)
(This story was refiled to say that ONGC is India's fifth-biggest company by market value, not third in the sixth paragraph)